Tesco fails to get a lift from its Big Price Drop

The poor showing came after Tesco unveiled its Big Price Drop campaign in September, highlighting £500m of price cuts. The retailer said on Thursday that the fall in like-for-like sales was wholly a reflection of the price cuts and pointed out that sales volumes had actually increased.Photo: Reuters

City analysts variously described the retailer's performance as "uninspiring", "disappointing" and "lacklustre" as Tesco reported a 0.9pc drop in UK like-for-like sales, excluding VAT and petrol, in the 13 weeks to November 26.

The poor showing came after Tesco unveiled its Big Price Drop campaign in September, highlighting £500m of price cuts. The retailer said on Thursday that the fall in like-for-like sales was wholly a reflection of the price cuts and pointed out that sales volumes had actually increased.

Laurie McIlwee, Tesco's finance director, said the company was one of "a very short list" of retailers to see higher volumes as he defended the campaign. "It's not a promotion... it's a medium-term strategy. Its lasting impact should be judged after months, not weeks," he said. "We're very determined on this. It will be successful."

However, some City watchers were unimpressed. "Tesco's UK business continues to underperform," said Kate Calvert at Seymour Pierce. "We are unconvinced that 'Price Drop' will return the UK business to industry outperformance given the scale of the operations."

Despite the performance of the UK business, group sales rose 7.2pc, fuelled by inflationary pressures, expansion and growth in the US and Europe.

However, Tesco increased like-for-like sales in just three of its 12 major trading regions between the second and third quarter. Sales slowed across Asia and in the US, were flat in the UK, with improved trading figures only seen in Poland, Slovakia and Ireland.

Like-for-like sales at Tesco's Fresh and Easy stores in the US were up 11.9pc, from 12.4pc in the second quarter. Mr McIlwee said that while that performance was positive, "it needs to be closer to 20pc". In Asia the disruption in Thailand caused by the flooding interrupted what the company called "an otherwise strong sales trend". Sales were 1.4pc higher but the company took a £50m hit from the natural disaster.